May 11, 2013

Poker's Watergate Moment

"I did take this money and I'm not trying to make it right, Dan, so we gotta get that out of the way right away, real quick."

~Russ Hamilton to then Ultimate Bet legal counsel Dan Friedberg, Early 2008

Last night, Travis Makar, a former associate of disgraced poker pro Russ Hamilton, released a large number of files related to the Ultimate Bet cheating scandal. Over the past five years, significant information has come to light regarding the scandal, much of it involving internal Ultimate Bet records, emails, and other documents.  That evidence—much of which was analyzed extensively by Haley Hintze, Nat Arem, and other dedicated folks in the poker community—painted a compelling story that Hamilton and likely others at Ultimate Bet had used a software program that permitted a player to see his opponent's hole cards in real time, allowing them to play perfectly. This so-called "God mode program" was used to steal more than $22 million from high-stakes Ultimate Bet players, though the actual amount stolen was almost certainly north of that admitted amount.

Until last night, despite the official determination by regulators that Russ Hamilton was the primary figure in the cheating scandal, the evidence available actually suggested that the scandal was wider than just Hamilton, that other high-level executives and big-name players at Ultimate Bet had known of the "God mode" cheating and profited from it, either using the program directly or profiting indirectly from collusion, chip dumping, or assisting in hiding the money trail. But all of that evidence was circumstantial, allowing a surprising number of suckers and apologists in the poker community to maintain that the scandal couldn't possibly have infected the management of Ultimate Bet. After all, why would an online poker site that could generate millions of dollars in rake take the risk of cheating and stealing from its own customers?

Ladies and gentlemen of the jury, I present to you Prosecution Exhibit A, a ten-minute portion of a three-hour audio recording of a meeting between Russ Hamilton and several Ultimate Bet executives. This meeting occurred during early 2008,* after the original hand histories had been released and the cheating detected by the poker community. The point of the meeting is to concoct a damage control strategy.



John Mehaffey at LegalPokerSites has prepared an excellent detailed summary of key points from the full three-hour meeting. Some notable moments in this ten-minute part of the meeting include:
  • Beginning:  Immediate discussion of fact that information about the God Mode account has gone public, and the need to create plausible (but apparently false) story to explain and minimize the cheating. 
  • 2:55—Russ Hamilton: "Annie Duke used it [God mode software] on a 15 minute delay quite a few times."
  • 3:10—UB Executive asks Russ to identify cheated pros who he could "explain it away" to prevent a claim being made.
  • 4:00—Discussion of limiting exposure to $5 million, including any fine to the Kahnawake Gaming Commission (KGC).
  • 5:07—Russ Hamilton: "I did take this money and I'm not trying to make it right, Dan [Freidberg, Ultimate Bet legal counsel], so we gotta get that out of the way right away, real quick."
  • 6:30—Russ Hamilton claims he spread his ill-gotten gains to high stakes players: "Freddy Deeb got the most cash." (NOTE: This is not to say those who got money knew about the cheating. This might have been staking, or a method of indirect cashing out to hide the cheating paper trail.)
  • 8:20—Russ Hamilton justifies his fraud by claiming he used it to pump up UB: "I spent a lot of this money on [UB promotions]."
  • 8:30 to end—UB exec suggests some of Russ Hamilton's cheating was "sanctioned" by management to help UB survive a financially difficult period.
  • 9:00 to end—UB exec suggest shifting blame/liability for fraud to Excapsa is "my current goal".

In a courtroom, a standard instruction judges give to juries is that direct and circumstantial evidence can be given equal weight. But as a trial attorney, I know better. Direct evidence like an audio or video recording of the people involved in a crime is pure gold. Nothing beats an admission straight from a criminal's or witness's own mouth.

Ever since the original Watergate scandal back in the mid-1970s, the media attempts to analogize every new political scandal back to Watergate. But with the release of this new Ultimate Bet audio recording, the analogy is rather apt. In Watergate, the initial crime—a break-in at the Democratic Party headquarters—was a plot involving only a few key Nixon campaign staffers. But once the break-in was discovered, the cover-up efforts spread to more senior White House staffers, and eventually to the President himself. Initially, the investigation involved statements and testimony from individuals with circumstantial knowledge of key events, and a variety of circumstantial documents laying out a "money trail". White House staff denied or disputed all allegations of misconduct, and delayed or obstructed the investigation at every turn. But the scandal escalated when it was discovered that audio tapes of White House meeting existed. Once those tapes were released, there could be no further plausible deniability of the involvement of many senior White House staffers, as well as the President himself.

Just like in Watergate, the release of this Ultimate Bet audio recording (and another recording from a few months later) is a game-changer. It is no longer possible for the apologists to defend Russ Hamilton or any of Ultimate Bet's senior management who were at this meeting, or who are implicated by this recording. It is now crystal clear that Ultimate Bet's management was facing a financial crisis in the wake of the scandal, and thus never had any interest in coming clean about the scandal or in identifying and repaying customers who had been cheated. Instead, the entire focus of management was to perform public relations damage control and to minimize exposure for fines or customer claims. If that meant fabricating stories, shifting blame, or outright denial, so be it.

Of course, this scandal is now more than five years old. Ultimate Bet doesn't even exist anymore, a victim of Black Friday and shady player account practices. Much of this new evidence will simply confirm what has already been pieced together from other sources. It is unlikely that any criminal charges will ever be brought against Hamilton or the Ultimate Bet executives complicit in the cheating or the cover-up. Regrettably, this new evidence probably has surfaced far too late to assist any of the cheating scandal victims in recovering their money. But having an accurate historical record of the details of the cheating and the cover-up may well be useful in helping iGaming regulators detect and prevent future cheating. And, to the extent any of the involved individuals remain part of the gaming industry, they can and should be asked to explain themselves to gaming regulators. Frankly, given this audio recording, Hamilton and the others at the meeting should be permanently barred from the gaming industry, and attorney Daniel Friedberg should also be disbarred anywhere he is licensed to practice law.

Unfortunately, this new evidence may well have one additional Watergate-esque effect: staining the online poker industry's reputation. Certainly the Absolute Poker and Ultimate Bet superuser scandals have been common knowledge within the poker community. In fact, these scandals were the subject of a 60 Minutes report discussing the "Wild West" of cheating on poorly regulated online poker sites. But the new Ultimate Bet audio recording adds a piece of the puzzle that makes the scandal more real to those folks who are potential casual poker players who haven't paid much attention to the scandals to date (or might even be too young to have heard of them). Certainly these new revelations come at an awkward moment in online poker legalization efforts, as legislatures wrestle with a variety of customer protection concerns. Ultimately, this new information probably won't prevent online poker legalization by itself, but it will give poker opponents fresh ammunition. But, if this new information leads to tougher online poker regulations and stricter security oversight, then poker players will be better for having this sordid mess finally put to rest.

Sunlight truly is the best disinfectant.

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* UPDATE (5/12/2013; 3:45 PM CDT):  The original version of this post incorrectly placed the audio recording in "late 2008" based on other writers' ambiguous references to "Winter 2008". However, given the discussion in the recording of creating a cover story that did not implicate Russ Hamilton and discussions as to the ongoing internal investigation into the accounts used in the "AuditMonster" cheating scheme, the timing of the meeting in the recording must have been sometime after the cheating was discovered in January or early February of 2008, and certainly before the preliminary KGC report of September 29, 2008 which identified Russ Hamilton as the primary (or sole) cheater. Further, the Ultimate Bet internal investigation report was provided to the KGC in late July, 2008, so discussion of the official story to provide to the KGC would have occurred prior to that report.

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In the days ahead, follow Haley Hintze (Twitterblog, and FlushDraw.com), TwoPlusTwo, Chris Grove, and Kevmath for updated information on the scandal, along with the usual excellent poker news sites like FlushDrawLegalPokerSites, OnlinePokerReport, and PokerFuse.

2 comments:

  1. good reporting, thank you for your work on this. the poker community deserves to know.

    ReplyDelete
  2. IN 2006 AT THE BELLAGIO DURING THE WSOP I HAD A CONVERSATION WITH A YOUNG MAN WHO HAD PREVOULSY INSTALLED AND WHO WAS IN THE PROCESS OF INSTALLING ONLINE SERVERS AT THE CANADIAN TRIBAL SITE. BEFORE THAT I HAD HAD EXTENSIVE EXPERIENCE WITH INVENTIONS AND PATENTS RELATING TO NUMEROUS ONLINE GAMING SYSTEMS. I TOLD THE YOUNG MAN THAT IN MY OPINION THERE WERE MANY WAYS BY WHICH THE PLAYERS COULD BE CHEATED. THE CHEATING COULD BE EFFECTED: BY THE COMPANY ITSELF; BY A ROGUE COMPANY EMPLOYEE IN CONCERT WITH OUTSIDE CO-CONPIRATORS; BY INDEPENDENT NON-COMPANY INDIVIDUALS WHO HAD ACCESS TO THE VARIOUS COMPUTER CODES ETC. ETC. ETC. THE YOUND MAN RESPONDED BY STATING THAT THERE WAS "ABSOLUTELY" NO WAY THAT THE PLAYERS COULD BE CHEATED BECAUSE THEIR EQUIPMENT WAS PROGRAMMED TO CATCH SUCH CHEATING. WELL NOW WE KNOW WHAT HAPPENED. ENOUGH SAID.

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